Capital Chases Growth

Capital Chases Growth - Be Part of the Journey

One thing for all of us to understand is "Capital Chases Growth". The Globalization has made it easier for Investment firms to look for lucrative opportunities across the globe. So with India falling under the category of Emerging Economies along with Brazil, Russia, China (Collectively called as BRIC nations) Capital indeed would flow to these nations in expectation of growth. Some more nations in this Emerging Economies list are the likes of Taiwan, Indonesia, Turkey Mexico, Philippines  etc. 

How a particular country is classified as a Developed, Emerging etc are mainly based on the Growth rate of the country. Also termed as the Gross Domestic Product (GDP). One can read more on the term by Googling it. 

Among the BRIC nations there is uniqueness in each country's growth story. Brazil & Russia's growth contributors are mainly Commodities - Oil, Sugars, Minerals. Both are Commodity rich nations.

India is a domestic consumption driven story & China's growth mainly coming from Exports & also from Consumption.

So if one is with the assumption that there wont be any adverse man made happenings (War) etc. then these countries should grow at a healthy rate & eventually more and more capital would chase these countries. 

The routes through which these capital can move in are through FII & FDI route. A basic definition of the above terms would be - A Multi National Companies setting up businesses here is termed as Foreign Direct Investment (FDI); & A MNC can decide to invest in Listed Indian Companies through the route of Stock Markets by registering as a Foreign Institutional Investor (FII).

Stocks can be excellent way to generate wealth if one studies the businesses & invests in right business at the right time (Right Price). Majority of us do not have either the time to study or are too lazy not to do it because of other distractions or not aware about Stock markets at all.

But there is a way out even if you are unaware about Stock Markets but believe India can grow multifolds & in turn can become one of the economic power house in 1 to 2 decades then the best way for the majority would be to leave the number crunching of the companies profit & loss to fund manager & just identify good funds & keep investing in them in a systematic manner without Greed or Fear. So if Indeed Market Indices multiply 'n' times, the funds too would mimic the Indices & the money you've invested would grow multifold. But be assured it wont be a straight forward journey to the top. There would be Ups & down in the journey. One needs to be seated tightly & ride the journey.

Best thing to do for Layman who are completely ignorant about Stock markets are to Invest in Quality Mutual Fund Schemes with proven track records & not fall prey to New Fund Offers (NFO).

In a Layman's language a Mutual Fund can be termed as an Entity that collects money from Public, Corporates and other entities & invests these money in asset classes that can generate sound return. (Premises where it can invest would be decided in the Scheme Objective. Eg:- A Large cap fund cannot invest in small cap companies etc.) A Mutual Fund would issue Units to People who have invested in them & as the assets the fund has invested grows the Unit value also grows proportionally. You can read more on Mutual Funds by Googling it :-)

Similar to having a Basket of stocks in one's portfolio; one can have a basket of mutual funds to create wealth in the long run. Now this Basket can vary from Individual to Individual mainly depending on the Risk apetite, age group, responsibilities. 

Below Reference chart would illustrate the Ideal Portfolio for Age groups. This chart on a broad level can be applicable to people in respective age group.

Equities refers to investments in either stocks or Mutual fund schemes that invest in these Equities.

Debt refers to investment in Fixed Income Securities like Government or Corporate Bonds, NCD's (Non-Convertible Debentures), Infrastructure funds Fixed Deposits, Kisan Vikas Patra etc.

Commodities refers to investment in Gold or Silver - these can be either in physical or in Electronic form.

Note: I've deliberately kept the weightage of Commodities to just 10% across the Age group. Just because for one Commodities are not asset classes as it doesn't earn anything for you & also these commodities can go through a prolonged outperformance or  underperformance cycles that can last for years. When need arises one can always rejig the portfolio to accomodate them by reducing exposure in either Equity or Debt is left to individual's choice.

In next article of the series would cover few of the funds that can be invested in each category & that can be invested in a systematic way for wealth generation.

Let me know how you liked this write up & if anything more can be added to make it more interesting.

Steps to choose the Right Mutual Fund

It's that time of the year again for those of us who are not disciplined enough to do a systematic investment to save taxes & also to build wealth for future.

Last week I did a analysis of few tax saving mutual funds known as Equity Linked Savings Scheme (ELSS). The only difference between diversified mutual fund & ELSS fund is the latter has 3 years Lock-in period for each of the investments made whereas the former has 1 year Lock-in period.

I would just list down on the steps to eliminate funds that underperform the index & arrive at the top 5 funds.

• Consider Funds that are in existence from atleast 3 years.
• Select those funds where Risk grade is Average or Below Average or Low.
• Select only those funds that have Returns grade as Above Average
• Higher the Alpha value better the fund manager is, so choose a fund that has high Alpha value.
• Higher the Sharpe Ratio value better the fund is, so choose a fund that has high Sharpe ratio. (P.S: A Fund manager by not diversifying into many stocks can lead to the Sharpe Ratio to be high. So care to be taken in seeing if the mutual fund portfolio is fairly diversified)

The above 5 were the main way to arrive at some set of Mutual fund schemes in the category. Now comes qualitative way of selecting the funds among the shortlisted pool.

• Choose a fund/s that has lower Expense Ratio.
• The top 10 holdings of the fund ideally should not exceed 40% of the total holdings. 
• If two funds have identical risk to reward ratio & similar Alpha & Sharpe ratio then better go for the fund that has performed over long term.
• While seeing the performance of a fund choose a fund that has consistently performed for atleast 5 year period or more.

These rules of selecting funds can be applicable to Diversified Mutual Funds or to even Balanced Funds. For sector specific funds a different set of rules needs to be considered.

Just before i conclude i applied the above steps for the ELSS Universe & came up with these 5 funds as good to invest in depending on their performance till now.

• Canara Robeco Equity Tax Saver
• Fidelity Tax Advantage
• HDFC Tax Saver
• HDFC Long Term Advantage
• Religare Tax Plan

Ideally it would be better if number of mutual funds in one's portfolio is kept to 3 or one can start off with 5 & depending on the performance of the funds can eliminate 2 funds and keep investing in the other 3 to create wealth.

I hope these guidelines would help an investor to choose a better fund that would help them to maximize their wealth.


Good websites for articles & performance of Mutual Funds are

• http://www.valueresearchonline.com
• http://www.mutualfundsindia.com

Would be happy to answer any of your queries.

Disclaimer: Please note Mutual Fund Investment is subject to market risk. Past performance may or may not reflect the future performance. Information is shared in good faith only. Contact a Certified Financial Planner for professional help :-)

A Routine Life? - It's A Corporate Life!

Having a routine or a monotonous life? - Oh! then in most cases it has to be a career in Corporate Life!

Corporates life in the current generation has become quite monotonous. The changes that takes place in one's life after entering into this eventual profession are many and most of them are not to be proud of. Major change that happen is a feeling of closeness with buddies over the years who were close to you is transformed into acquaintance. If not with all, at least with most of them. The same applies to relatives, as you start missing most of the family functions due to your tight work schedule.

A morning of a corporate usually begins with tranquil atmosphere. But picks up gradually with peers adding pressure on you to get the work done through stringent deadlines(As i term it as). All that is left for the end of day is the energy to get back home and to rest. The worse is if you have to take a public transport or have to travel in the peak hours of the day to get back home. When this is the scenario everyday of the week, usually what happens is all your appointments or interaction with people is shifted to weekends. Slowly over a period of time this weekend is transformed to a fortnight. After few fortnights this fortnight is now monthly or bi-monthly. And next is just interacting when meeting up during a festive time or a accidental meeting somewhere on the roads.

Due to this extreme lifestyle majority of people burn out. Typical Corporates career is as short as a cricketer's career or if not in most cases its as short as a tennis professionals career. The people who survive are people who can transform their lifestyle and can find work-life balance.

Somewhere down the lane people will realise that if the Corporate life goes this way then by the end of few years you will have more bank accounts than friends, more assets than relatives; It might sound exaggerating but its true. People forget socialising and in future when they hang up their boots in their respective career it reflects in feeling lonely. As you do not find right people with whom you can share your feelings. In most cases people have a disarrayed family life just because of this corporate life.

People should introspect themselves and change their lifestyle for betterment. I personally have seen people who are married going home late day in day out. Kids waiting for their dad to arrive home. They do not realise the fun and relaxation that comes with spending quality time with family and especially with kids. As the time goes by they realise to spend those quality time it might be too late as the kids of 3 to 5 years by now would have been grown up youths. People should realise that it's just not money which brings happiness, it might be one of the factors for few, but not just one. There are other factors to bringing happiness to life. One of them is striking the right "Work-Life" balance.

The sole intention of this article is to stress on having proper "Work - Life Balance". If this is taken care off then the rest of the things will look after itself. Work - Life balance can be done in many ways. The best way to look after that would be to socialise and to find things which can make you relaxed is listening to music or any kind of activity like swimming, time spent in workout at a gym, meditation for the mind and the body etc. Getting back to your favourite past times, enjoying a sporting extravaganza, or a three hour movie or any such thing that would relax the mind and free it from tension will do a world of wonder.

Life is Beautiful. Make it Wonderful by proper Work-Life Balance.

P.S: Any kind of comments, especially criticisms would be appreciated.
P.N: Please do mention your names in the comments.


Happy Reading, Vats